4 ms·

> "But I'm learning. I gather that these are ingenious computer-driven trading schemes in which good money can be earned from bad debt, and Wall Street's Master

by retube 16y ago

> "But I'm learning. I gather that these are ingenious computer-driven trading schemes in which good money can be earned from bad debt, and Wall Street's Masters of the Universe pocket untold millions at the same time they bankrupt their investors and their own companies" err... what? He's demonstrated the issue perfectly. Most people, him included, understand absolutely fuck all about derivatives, trading etc, their opinion being based solely on misleading and misinformed opinion pieces in the press. Edit: I can only assume that if he's that offended by derivatives he doesn't have car insurance, home insurance, health insurance or any other kind of insurance.

CulturalNgineer 16y ago
Car insurance and home insurance are relatives of 'derivatives' but are much different than the "naked" derivatives and CDO Squared instruments (2nd generation derivatives naked or otherwise). While you're right about his error regarding the 'computer-driven' aspect as it relates to these instruments... it's a big part of the problem in flash trading and front-running to game the system. Perhaps you'd like to take some interest in the real functions of investment. Might be worthwhile to also investigate issues of credit-creation bias and how that's been working-out. Free Enterprise isn't about who can be most creative in developing the most ridiculous gambling methods and disguising them as 'financial innovation'. In overall thrust Mr. Ebert's piece is on the money... at least what there is left of it for regular folks. Adam Smith is a good source.
gizmo 16y ago
To take issue with some bad terminology is to miss Mr Ebert's point. He writes for laymen, so his argument is not about the exact internals of Wall Street, it's about the big picture. In this case Richard Fuld of Lehman took home $480 million even as the company was falling apart. Billions in bonuses all around. Ebert thinks that's highly unethical. Traders/quants/etc snort cocaine when dealing with billions of other people's money, including mortgages and pension funds, according the article. Ebert thinks that's highly unethical, too. So this isn't about Roger Ebert's technical understanding of the matter, it's about traders acting against the interests of their clients, and not giving a fuck about it. I think Ebert is perfectly qualified to comment on that.
- hga 16y ago
  "Richard Fuld of Lehman took home $480 million even as the company was falling apart" This is a misstatement that rises to the level of invidious lie in context. That's his compensation over 15 years (1993 to 2007), much of it in stock. His net worth was around a billion before the crash in large part thanks to that stock. Now ... it's not so much.
yardie 16y ago
>> good money can be earned from bad debt There is no money in bad debt. There is money in shuffling bad debts. And that's what we had. Every bad loan requires atleast 2 good ones to cover it. And if you have a few bad ones you raise the rates. But when all you have are bad ones what do you do? Even insurance has its limits, thats why reinsurance exists, to bail out the big guys when they've stretched themselves. Ask any Floridian about how they feel about home owners insurance? Car insurance is easy the risks are known and easily modeled. Home insurance is easy money until you have a major disaster. The governor of Florida had to threaten to shutdown all of Statefarm's business because they didn't want to pay claims after katrina and Rita. No one knows fuck all about derivatives. Even the people that are supposed to know know fuck all about them. They're not in the business of holding derivatives, just shuffling them. As long as they could shuffle them, convince someone else to buy them (clients), and make a profit they didn't care. And that's the point. When one company does it they have an edge, it's dangerous but the market can absorb the loss. Losing Barings Bank in 1995 was the same thing though on a smaller scale. They went bankrupt, the market picked through the carcass. When they all do it, we are vulnerable. There are no others to pick through the pieces. Hell they had to foist Leyman brothers on BofA because if no one took the bad debt then people would realize they were gambling. People realized it anyway and boom goes the dynamite.
brazzy 16y ago
No. The real issue is that derivatives have to a large part been intentionally made hard to understand in order to create a complex system that can be gamed by people who understand parts of it, for a time. And this system has become completely divorced from any useful risk-managing effect derivatives were originally created for and is now creating impossible-to-manage risks of its own, and more importantly, is having a huge net negative effect on the economy. Rather than mediating between those who have money to invest and those who need money to create value, the financial industry has in large parts become a parasite that sucks profits out of the economy while providing no value of its own.

by retube 16y ago

CulturalNgineer 16y ago

Car insurance and home insurance are relatives of 'derivatives' but are much different than the "naked" derivatives and CDO Squared instruments (2nd generation derivatives naked or otherwise). While you're right about his error regarding the 'computer-driven' aspect as it relates to these instruments... it's a big part of the problem in flash trading and front-running to game the system. Perhaps you'd like to take some interest in the real functions of investment. Might be worthwhile to also investigate issues of credit-creation bias and how that's been working-out. Free Enterprise isn't about who can be most creative in developing the most ridiculous gambling methods and disguising them as 'financial innovation'. In overall thrust Mr. Ebert's piece is on the money... at least what there is left of it for regular folks. Adam Smith is a good source.

gizmo 16y ago

To take issue with some bad terminology is to miss Mr Ebert's point. He writes for laymen, so his argument is not about the exact internals of Wall Street, it's about the big picture. In this case Richard Fuld of Lehman took home $480 million even as the company was falling apart. Billions in bonuses all around. Ebert thinks that's highly unethical. Traders/quants/etc snort cocaine when dealing with billions of other people's money, including mortgages and pension funds, according the article. Ebert thinks that's highly unethical, too. So this isn't about Roger Ebert's technical understanding of the matter, it's about traders acting against the interests of their clients, and not giving a fuck about it. I think Ebert is perfectly qualified to comment on that.

hga 16y ago
"Richard Fuld of Lehman took home $480 million even as the company was falling apart" This is a misstatement that rises to the level of invidious lie in context. That's his compensation over 15 years (1993 to 2007), much of it in stock. His net worth was around a billion before the crash in large part thanks to that stock. Now ... it's not so much.

yardie 16y ago

>> good money can be earned from bad debt There is no money in bad debt. There is money in shuffling bad debts. And that's what we had. Every bad loan requires atleast 2 good ones to cover it. And if you have a few bad ones you raise the rates. But when all you have are bad ones what do you do? Even insurance has its limits, thats why reinsurance exists, to bail out the big guys when they've stretched themselves. Ask any Floridian about how they feel about home owners insurance? Car insurance is easy the risks are known and easily modeled. Home insurance is easy money until you have a major disaster. The governor of Florida had to threaten to shutdown all of Statefarm's business because they didn't want to pay claims after katrina and Rita. No one knows fuck all about derivatives. Even the people that are supposed to know know fuck all about them. They're not in the business of holding derivatives, just shuffling them. As long as they could shuffle them, convince someone else to buy them (clients), and make a profit they didn't care. And that's the point. When one company does it they have an edge, it's dangerous but the market can absorb the loss. Losing Barings Bank in 1995 was the same thing though on a smaller scale. They went bankrupt, the market picked through the carcass. When they all do it, we are vulnerable. There are no others to pick through the pieces. Hell they had to foist Leyman brothers on BofA because if no one took the bad debt then people would realize they were gambling. People realized it anyway and boom goes the dynamite.

brazzy 16y ago

No. The real issue is that derivatives have to a large part been intentionally made hard to understand in order to create a complex system that can be gamed by people who understand parts of it, for a time. And this system has become completely divorced from any useful risk-managing effect derivatives were originally created for and is now creating impossible-to-manage risks of its own, and more importantly, is having a huge net negative effect on the economy. Rather than mediating between those who have money to invest and those who need money to create value, the financial industry has in large parts become a parasite that sucks profits out of the economy while providing no value of its own.